Have you ever heard of big and large companies that seem to pay very little in taxes? This happens because of a practice called base erosion and profit sharing (BEPS). In this article, we will explain BEPS in simple terms, how it affects everyday people, and the efforts being made to address this global tax challenge.
Imagine you and your friends are sharing a pizza. Each friend takes their fair share of slices from the pizza and everyone is happy. However, some companies and firms have found ways to shift their profits to low-tax countries, leaving less to be shared with the countries where they actually do business. This is called base erosion and profit sharing (BEPS).
Base erosion and profit shifting (BEPS) are tax avoidance methods employed by multinational corporations to take advantage of loopholes and inconsistencies in tax laws. Because they rely more heavily on corporate income tax, developing nations are disproportionately affected by BEPS. BEPS tactics result in yearly income losses for nations of $100–240 billion USD. Over 135 nations and jurisdictions are cooperating on the implementation of 15 measures under the OECD/G20 Inclusive Framework on BEPS to combat tax avoidance, enhance the coherence of international tax legislation, and promote a more transparent tax environment.
Because developing nations heavily rely on corporate income tax, particularly from multinational corporations, BEPS is significant for them. It’s crucial to involve developing nations in the worldwide tax agenda so that they can successfully participate in the process of international tax standard-setting and receive support for their unique needs.
Base Erosion and Profit Sharing (BEPS) has practical ramifications for both governments and common citizens. Here is how it might impact us:
1. Reduced Public revenue
Governments lose tax money when businesses move their earnings to nations with cheap taxes. Less money may be available for public services like infrastructure, healthcare, and education as a result.
2. Increased Tax Burden
Governments may need to raise taxes on individuals and small businesses to make up for lower tax revenue from large corporations. Regular taxpayers are put under more stress as a result.
3. Unfair Competition
Base Erosion and Profit Sharing (BEPS) can stifle competition by unfairly favoring multinational corporations over smaller enterprises that cannot afford sophisticated tax planning techniques. Innovation and economic progress may be hampered by this.
Over 135 nations and jurisdictions are working together to implement the BEPS Package under the OECD/G20 Inclusive Framework.
The BEPS package offers 15 Actions that give governments the domestic and global tools they need to combat tax evasion. Countries now have the means to guarantee that profits are taxed in the locations of economic activity and value creation. By minimizing disagreements on the application of international tax laws and standardizing compliance requirements, these instruments also provide firms with more certainty.
A contemporary international tax framework is being established by the OECD, the G20, and developing nations who are taking part in the implementation of the Base Erosion Profit Sharing package and the ongoing development of anti- BEPS international standards to ensure profits are taxed where economic activity and value creation occur. Work is being done to assist those nations interested in doing so, especially those for which capacity building is a key concern, in doing so in a consistent and coherent manner.
The Inclusive Framework on Base Erosion and Profit Sharing enables interested nations and regions to collaborate with OECD and G20 members to set standards on BEPS-related issues as well as to assess and track the BEPS Package’s implementation.
The OECD/G20 Inclusive Framework on BEPS regularly tracks the execution of all BEPS Actions and updates the G20 on this development on an annual basis. The BEPS Minimum Standards are of great importance, and each one is the topic of a peer review process that assesses each member’s implementation and offers specific suggestions for improvement. Peer reviews of the BEPS basic criteria are a crucial component of the BEPS package’s implementation process. For Action 5 in 2017, for Action 13 and Action 14 in 2018, and for Action 6 in 2019, initial results were released. Peer reviews’ findings reveal widespread, effective adoption. All nations and regions who join the framework will take part in this evaluation process, which enables participants to examine their own tax systems and find and eliminate components that represent BEPS risks.
Base Erosion and Profit Sharing is a global issue that calls for a coordinated approach. To guarantee taxation is fair, efforts are being made to develop international norms and principles. Countries may close gaps, improve transparency, and establish a level playing field for all firms by cooperating.
Base Erosion and Profit Sharing (BEPS) is a strategy that certain businesses use to avoid paying their fair share of taxes, which has an effect on governments and common citizens. However, there are ongoing international initiatives to address BEPS. To stop this activity, steps are being taken including increased information exchange, fair transfer pricing regulations, anti-treaty shopping measures, and country-by-country monitoring. We can ensure that businesses pay their fair share of taxes by preventing BEPS, which will result in a more equal tax system and more funding for public services.
For further information or inquiries, you can reach us at taxservices@kcp.com.ng or info@kcp.com.ng. You can also visit our website at www.kcp.com.ng. Stay tuned!